Monday, September 26, 2011

Not Seeing The Trees For The Forest

Paul Krugman's analysis of the European Debt Crisis,  in this morning's New York Times, should be required reading -- not just for the movers and shakers in Europe, but for our own so called wise men. Krugman's critics on the right accuse him of fiscal hysteria. But his analysis is clear eyed and, therefore, gloomy:

Think of it this way: private demand in the debtor countries has plunged with the end of the debt-financed boom. Meanwhile, public-sector spending is also being sharply reduced by austerity programs. So where are jobs and growth supposed to come from? The answer has to be exports, mainly to other European countries.

But exports can’t boom if creditor countries are also implementing austerity policies, quite possibly pushing Europe as a whole back into recession.

Krugman has never argued that debt is not a problem. But he continues to maintain that it is a longer term problem. What is more important -- in the short term -- is stimulating economic growth, creating jobs, and improving government tax receipts.

For those who believe that debt is about to overwhelm us, all of this is counter intuitive -- just as John Maynard Keynes' solution for The Great Depression was counter intuitive. And, therefore, Krugman's conclusion that, "there is a very wide gap between what the euro needs to survive and what European leaders are willing to do, or even talk about doing" is spot on.

That same conclusion applies to David Cameron's remedy for his country's problems. Cameron was in Ottawa last week, praising Canada for advocating the same policies. Meanwhile, Jim Flaherty has the gall to lecture the Europeans on their lack of fiscal virtue. And Stephen Harper goes on American television, claiming that Canada is a light to the world.

Such incredible and wrongheaded arrogance is more than embarrassing. It's folly -- because our elites cannot see the trees for the forest.

This entry is cross posted at The Moderate Voice.


William Hayes said...

Perhaps you haven't seen David Olive's piece in the Toronto Star:

We need more stimulus, not cutbacks

Olive begins with this: "Canadian MPs who took in David Cameron’s address to a joint session of Parliament last Thursday are well-advised to forget what they heard from the British PM."

Tossing Pebbles in the Stream said...

It seems Harper wants to speak to all kinds of people from World leaders to the American people with the exception of the Canadian people. His government addresses Canadians concerns as little as possible. For example, I am so tired of the CBC having an intelligent discussion of a issue only to end it with: Mr. X, or goverment representative Y, was contacted to give their view but they were not available or did not return our call. Either the government is hiding or it is hostile to the CBC. I suspect both as I fear they will further gut the CBC by cutting it's funding.

Owen Gray said...

The rumour is that the government has the CBC in its sights. Remember, Philip, this is the man who limited the press to four questions a day during the last election.

Conversation for the Conservatives is a one way street.

Owen Gray said...

An excellent piece, William. Olive's analysis, as usual, is -- you'll forgive the pun -- on the money.

One passage bears repeating:

From Rob Ford to Angela Merkel to America’s G.O.P., the global leadership class is willingly hostage to an intellectually bankrupt dogma that only worsens the crisis of widespread income deprivation.

Thanks for providing the link.